Growing the global footprint of Canadian food processors
Growth in the global demand for food brings tremendous opportunities for the Canadian agri-food industry, according to Tyler Betcher, Agricultural Economist with Farm Credit Canada (FCC). In a recent report, Betcher says two options are available for Canadian businesses to supply foreign markets: produce locally and export from Canada, or invest abroad to serve foreign customers directly. Although these options may appear mutually exclusive, Betcher says the evidence suggests foreign direct investment plays a critical role in supporting exports.
When Canadian businesses invest in other countries (known as outbound foreign direct investment (FDI)), Betcher says it brings a better understanding of foreign consumers’ tastes and preferences, reduces transport-related costs, and leads to learning opportunities and technology transfer. Ultimately, according to Betcher, this will help Canadian businesses perform better in the domestic market.
Investment grows at a rate slower than exports
According to the FCC report, FDI has grown in the past 10 years by 45 per cent, whereas Canadian exports of food and beverages increased by 55 per cent.
The U.S. economy remains a preferred destination for Canadian FDI, capturing a 64 per cent market share of Canadian greenfield investments, up from 50 per cent ten years ago, says Betcher. Between 2015 and 2017, 77 per cent of all food and beverage exports were destined for the U.S. market. He says NAFTA has made the U.S. an attractive export and investment destination for Canadian businesses, resulting in market share remaining relatively stable over the last ten years.
The elimination of trade barriers from the conclusion of CETA negotiations in 2014 did not slow Canadian investments in Europe, says Betcher. In fact, Canadian investment into European markets has grown by 265 per cent in the past ten years, and exports of food increased from $859M in 2008 to more than $1B in 2017.
Investing abroad develops stronger supply chains, says Betcher. For example, foreign investment can help source higher quality primary products that otherwise are not grown in Canada (such as cacao) and invest in processing capacity to add value (producing chocolate for example). Also, Betcher says exercising control in the supply chain through vertical integration or strategic partnerships can lead to traceability initiatives, which is highly desired by consumers.
Sectors that grew substantially over the past two years include sugar and confectionary products, as well as the fruits and vegetables processing sector. To see how FDI has increased in these sectors and others, refer to Figure 2 in the FCC report, available here.
Better concludes in the report that exports and foreign direct investments are inextricably tied. He says that although investments from foreign businesses into the Canadian food market increases competition for domestic food manufacturers, it creates export opportunities across the supply chain that may not otherwise be present. “Foreign investment leads to larger Canadian-owned global operations and raises our competitiveness. Together, inbound and outbound FDI can help the indstry reach its ambitious food export goals,” he says.